On Bonds
by Michael Carbone, CFA, CFP®
Bond investments have become more attractive as rising rates have generally pushed yields up across the board. As I write, short-term government bonds are yielding ~4.68% and longer-term bond investments ~3.454%. Current yields are significantly higher when compared to recent years.
Why are longer-term bonds paying less interest than shorter-term bonds?
- The Federal Reserve Bank (“The Fed”) has raised short-term interest rates in an effort to cool off the economy to lower inflation.
- Long-term interest rates are set by market forces. Long-term rates tend to be more sensitive to changes in inflation expectations. The bond markets expect inflation to fall eventually.
What individual bond investors may want to consider?
I believe individuals and families should be focusing on how bond yields might evolve over the next few years. This is particularly true for those with a large portion of their money invested in short-term bond investments. If interest rates fall, as bonds mature, you’ll be reinvesting at lower yields. If so, it may be worth considering extending the average maturity of your bond portfolio.
Please don’t hesitate to reach out to discuss these topics in greater depth. I can be reached at 978-455-7799 or Michael.carbone@raymondjames.com.
Thanks for reading!
-Michael Carbone
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